Perhaps the most interesting turn of events in the ongoing LIBOR scandal is the potential involvement of financial regulators, both in the United Kingdom and the United States. We know that on at least one occurrence, an October 2008 phone call between Bank of England (BoE) deputy governor Paul Tucker and Barclays CEO Robert Diamond, a BoE official indicated that he was “concerned” with Barclays’ high LIBOR submissions. While there is so far no evidence that the BoE requested Barclays to lower its submissions, there seems to be some strong suggestions that the BoE would have welcomed a lower number.

From an American perspective, an interesting fact revealed in the UK’s Financial Services Authority investigation was that on a number of occasions the Federal Reserve Bank of New York, then headed by current Treasury Secretary Tim Geithner, was informed by Barclays of its concerns about LIBOR manipulation by other banks as well as Barclays’ own approach to submitting LIBOR. Or as the FSA puts it:

Barclays discussed liquidity issues with external entities such as the FSA, the Bank of England and the Federal Reserve Bank of New York during the financial crisis in routine liquidity calls. At times information about Barclays’ liquidity position was relayed to the FSA on a daily basis. During certain of these liquidity calls, between November 2007 and October 2008, Barclays described to these external entities its perception that other banks appeared to be understating their LIBOR submissions. On occasion Barclays made comments about its own approach to submitting LIBOR. Barclays had similar conversations with the BBA [British Bankers Association] and believed that it had disclosed its approach to the BBA.

The FSA also notes that:

On 17 April 2008, Manager D made comments in a liquidity call to the FSA indicating that Barclays had been understating its LIBOR submissions: “we did stick our head above the parapet last year, got it shot off, and put it back down again. So, to the extent that, um, the LIBORs have been understated, are we guilty of being part of the pack? You could say we are. We’ve always been at the top end and therefore one of the four banks that’s been eliminated. Um, so I would, I would sort of express us maybe as not clean clean, but clean in principle”. Barclays made similar comments to the BBA and the Federal Reserve Bank of New York.

While UK regulators appear to be at the heart of the discussions, it is appropriate to ask what exactly did the New York Fed know and what did it say? Perhaps if we ever get a real audit of the Fed, we can learn whether Geithner and his crew at the NY Fed signed off on Barclays’ suppression of LIBOR rates.